TaxTMI 
TaxTMI 
2019 (5) TMI 689
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....ounds of appeal have been raised before us: "GROUND I: DISALLOWANCE OF SOFTWARE EXPENSES AMOUNTING TO Rs. 14,00,800/- 1. On the facts and in circumstances of the case and in law the AO erred in following the erroneous direction of Dispute Resolution Panel ("the DRP") in disallowing software expenses claimed under the head "Repairs - Computer - Others" on the alleged ground that the said expenses are capital in nature and has long term benefits. 2. The Appellant prays that the A.O be directed to treat expenditure incurred on software as revenue expenditure. 3. Without prejudice, the AO be directed to allow depreciation @ 60% on the software expenses incurred. GROUND II: DISALLOWANCE OF DEDUCTION U/S 35(2AB) IN RESPECT OF ENNORE UNIT AND GOREGAON UNIT: Rs. 24,89,50,211/- 1. On the facts and circumstances of the case and in law, the A.O erred in following the erroneous direction of Dispute Resolution Panel ("the DRP") in disallowing the weighted deduction claimed u/s. 35(2AB) in respect of R & D expenses (Revenue and Capital) related to Ennore Unit and Goregaon Unit amounting to Rs. 24,89,50,211/- on the alleged ground that no appr....
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.... sold in A.Y. 1999-00 on slump sale basis on the alleged ground that the A.O has considered it as sale of itemized sale of assets. 5. The Appellant pays that the A.O be directed to allow depreciation as claimed in Return of Income. GROUND V: ADJUST MENT OF INVENTORY AS PER SECTION 145A OF Rs. 1,16,08,088/- 1. On the facts and circumstances of the case and in law, the AO erred in following the erroneous direction of the DRP in re-computing value of closing stock at Rs. 15,982.73 lakhs as against Rs. 14,834/- lakhs and opening stock at Rs. 14,367.65 lakhs as against Rs. 13,335 lakhs on the ground that the Appellant is following exclusive method of accounting for Modvat with regards to inventory. 2. The A.O failed to understand and ought to have held that, irrespective of whether the Appellant follows Inclusive or Exclusive method of valuation of stock, the amount of unutilized MODVAT credit has no impact on the profits of the Appellant. 3. The Appellant prays that the A.O be directed to delete the adjustment of Rs. 1 ,16,08,088/- made u/s 145A of the Act. GROUND VI: DISALLOWANCE U/S. 14A OF Rs. 5,59,06,129/- 1. On the fac....
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....1,00,000/- to the Baddi unit eligible for deduction u/s. 80IC on the alleged ground that such expenditure are attributable to the said Baddi Unit. 2. The A.O failed to appreciate and ought to have held that the: a) Research and development expendi ture are incurred mainly on Process Development for customs manufacturing (PDG) and it has no connection directly or indirectly with the manufacturing activity carried out at Baddi unit. b) The assessee has not made any borrowing specifically for the purpose of setting Baddi unit and it working capital requirement is met by the cash or fund generated in the unit. 3. The Appellant prays that the A.O be directed not to allocate research and development expenditure of Rs. 12,28,00,000/- and interest expenditure of Rs. 11,31,00,000/- to the Baddi Unit. GROUND X: ELIGIBILITY OF DEDUCTION U/S. 80IC OF THE ACT 1. On the facts and circumstance of the case and in law, the A.O erred following the erroneous direction of the DRP in disallowing the deduction of Rs. 2,74,14,16,642/- claimed u/s. 80IC in respect of Baddi Unit on the alleged ground that the Baddi Unit is not eligible for deduction u/s....
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....ter and/or delete any/all of the above ground of appeal." 2. Briefly stated, the assessee company which is engaged in the business of manufacturing and sale of pharmaceuticals had filed its return of income for A.Y. 2009-10 on 30.09.2009, declaring total income of Rs. 7,64,65,737/- and had paid tax on the 'Book Profit' of Rs. 292,28,33,382/- under Sec.115JB of the I.T Act. The return of income filed by the assessee was processed as such under Sec.143(1) of the I-T Act on 13.08.2010. Subsequently, the case of the assessee was selected for scrutiny assessment under Sec.143(2). 3. The A.O after deliberating on the various issues involved in the case of the assessee, therein vide his draft assessment order passed under Sec.143(3) r.w.s. 144C of the I.T. Act, dated 28.03.2013 proposed to inter alia make the following additions/disallowance in the hands of the assessee: Sr. No. Particulars Amount 1. Disallowance of Software expenses. Rs. 14,00,000/- 2. Disallowance of deduction under Sec.35(2AB) in respect of Ennore Unit and Goregaon Unit. Rs. 24,89,50,211/- 3. Disallowance of claim of depreciation of additions to computer software. Rs. 17,63,425....
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....by the assessee in its present appeal before us. The ld. A.R. took us through a 'Chart' filed by the assessee and submitted that certain issues involved in the present appeal were squarely covered by the order passed by the Tribunal in the assesses own case for the immediately preceding year i.e A.Y. 2008-09 in ITA No. 5471 /Mum /2017; dated 30.07.2018. The ld. A.R taking us through the disallowances of software expenses aggregating to Rs. 14,00,800/- submitted that the lower authorities had erred in disallowing the said expense by characterising the same as a 'Capital expenditure' for the reason that the same has an enduring benefit. The ld. A.R took us through the relevant part of the assessment order in context of the issue under consideration. It was submitted by the ld. A.R that the A.O after characterising the expenditure incurred by the assessee towards purchase of various shrink wrap software, had allowed depreciation of Rs. 3,50,200/- i.e @ 25% of their aggregate value of Rs. 14,00,800/-. Insofar the purchase of last 3 items (as per the chart) viz. (i) Lotus Notes Web Access License; (ii) Lotus Note Web Access License; and (iii) Antivirus Software were concerned, it was su....
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....3CM", therefore, in the same terms the matter may be restored to the file of the A.O for providing an opportunity to furnish the same in support of its aforesaid claim. As regards the disallowance of claim of depreciation on additions to computer software amounting to Rs. 17,63,425/-, it was submitted by the ld. A.R that the lower authorities had erred in restricting the entitlement of the assessee towards its claim of depreciation on computer software @ 25% instead of 60% as was claimed by the assessee. It was submitted by the ld. A.R that a similar disallowance of the assesses entitlement towards claim of depreciation on computer software that was made by the A.O in the immediately preceding year i.e A.Y. 2008-09, was on appeal vacated by the CIT(A). It was submitted by him that the CIT(A) finding favour with the claim of the assessee had concluded that there was no question of denying depreciation @ 60% as per Appendix 1 to Rule 5 of the I.T Rules, 1962 r.w.s 32 on the computer software. The ld. A.R took us through the relevant observations recorded by the CIT(A) while disposing off the appeal of the assessee for A.Y 2008-09. It was submitted by the ld. A.R that the revenue had ....
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....the change in profits on account of inclusion of excise duty in purchases and stocks, as per which there would be no consequential increase/decrease in the profits for the year under consideration. (Page 61) of the 'Assesses Paper Book' (for short 'APB'). Insofar disallowance under Sec.14A of Rs. 5,59,06,129/- made by the A.O was concerned, it was submitted by the ld. A.R that the lower authorities by misconceiving the facts and the settled position of law had made the said disallowance. It was submitted by the ld. A.R that as the assessee had own funds which were substantially more than the investments made in the exempt income yielding shares, therefore, no disallowance under Sec.14A r.w. Rule 8D(2)(ii) was called for in its hands. In support of his aforesaid contention the ld. A.R relied on the judgments of the Hon'ble High Court of Bombay in the case of (i) HDFC Bank Ltd Vs. DCIT (2016) 383 ITR 529 (Bom); (ii) CIT Vs. HDFC Bank Ltd (2014) 366 ITR 505 (Bom); and (iii) CIT Vs. Reliance Utilities & Power Ltd. (2009) 313 ITR 340 (Bom). In sum and substance, it was the contention of the ld. A.R that as the assessee had sufficient interest free funds which would explain the source....
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....erting to the disallowance of the assesses claim of deduction under Sec.35A amounting to Rs. 2,42,85,714/-, submitted that the said issue was squarely covered by the order of the Tribunal in the assesses own case for A.Y. 2008-09. The ld. A.R further in order to drive home his aforesaid contention took us through the relevant observations of the Tribunal, wherein the Tribunal had concluded that the assessee was eligible for claim of deduction under Sec. 35A. The ld. A.R adverted to the disallowance of advertisement and business promotion expenses aggregating to Rs. 27,90,84,346/-. It was submitted by the ld. A.R that the lower authorities misconceiving the facts and the settled position of law had wrongly disallowed the aforementioned expenses which were incurred by the assessee wholly and exclusively for the purpose of its business and were admissible under Sec.37(1) of the I-T Act. It was submitted by the ld. A.R that the DRP had erred in restricting the entitlement of the assessee towards claim of the aforementioned expenses to Rs. 27,90,84,346/- i.e 50% of its aggregate claim of expenses of Rs. 55,81,68,692/- under the said head. It was submitted by the ld. A.R. that the aforem....
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....latable to its eligible unit situated at Baddi, therefore, the assessee had rightly not allocated any part of such expenditure to the same. It was further submitted by the ld. A.R that as the interest expenditure incurred by the assessee during the year was in context of the borrowed funds utilised for the units (excluding Baddi unit), therefore, no part of such interest expenditure was allocated by the assessee to the said eligible unit. In fact, it was submitted by the ld. A.R. that as the unit at Baddi had substantial funds by way of internal accruals in the form of profits that would feed its financial requirements, therefore, no part of the borrowed funds were utilised or diverted to the said eligible unit. In sum and substance, it was the claim of the assessee that the allocation of R&D expenses and interest expenses was rightly done by the assessee, which however, merely on the basis of baseless assumptions had been dislodged by the lower authorities by attributing and/or relating the same to the eligible unit at Baddi. Apart there from, it was submitted by the ld. A.R that the aforesaid issue was also considered by the Tribunal while disposing off its appeal for A.Y. 2008-0....
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....r short "FFS" machine) that was transferred from the Mulund Unit of the assessee was dispatched on 12.03.2008 and the same was finally installed and had commenced production at Baddi in the month of February, 2009. The ld. A.R submitted that the A.O had declined to allow the assesses claim for deduction under Sec. 80IC(2) for the reason that the assessee had not satisfied the requisite conditions and had rather violated the same. It was submitted by the ld. A.R, that as the value of the "FFS" machine on the date of transfer was substantially below 20% of the entire value of the plant and machinery, therefore, no violation on the part of the assessee on account of transfer of machinery or plant previously used for any purpose could have been drawn. It was further submitted by the ld. A.R, that the fact that the "FFS" machine was dismantled and dispatched from Mulund Unit on 12.03.2008, could safely be gathered from the fact that an entry in respect of transfer of the same to the Baddi unit was found recorded on the said date. In support of his aforesaid contention, the ld. A.R took us through Page 636 of the APB, wherein the aforesaid fact stood substantiated. It was further submitt....
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.... business of machinery or plant previously used for any purpose. However, as per the ld. A.R the entitlement of the assessee towards claim of deduction under Sec.80IC would not be affected if in the subsequent years there is a splitting up of the business or transfer of a machinery or plant which was previously used for any purpose. In sum and substance, it was the claim of the ld. A.R that the satisfaction of the condition envisaged in sub-section (4) to Sec.80IC viz. (i) that the undertaking or enterprise is not formed by splitting up or the reconstruction of a business already in existence; and (ii) that the undertaking or enterprise is not formed by the transfer to a new business of machinery or plant previously used for any purpose, were confined to the initial year in which the undertaking or enterprise was formed. In order to drive home his aforesaid contention the ld. A.R relied on the judgment of the Hon'ble Supreme Court in the case of DCIT-Circle 11(1), Banglore, Vs. Ace Multi Axes Systems Ltd. (2018) 400 ITR 141 (SC). The ld. A.R taking us through the relevant observations of the court which though were rendered in context of Sec. 80IB, submitted, that it was observe....
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....id statutory provision. In order to fortify his aforesaid contention the ld. A.R relied on the order of the ITAT, Delhi Bench "C" in the case of Ganpati Herbalcare (P) Ltd. Vs. Pr. CIT, New Delhi (2018) 97 taxmann.com 575 (Del). It was submitted by the ld. A.R that in the aforementioned case the Tribunal had observed that for adjudicating the eligibility of an assessee for claiming deduction under Sec.80IC, investigation for ascertaining if the unit was newly set up or reconstructed is to be carried out in the initial year. On the basis of its aforesaid observations the Tribunal had concluded that the failure on the part of the A.O in not considering the said aspect in a year subsequent to the initial year would not render the order as erroneous for the purpose of invoking the provisions of Sec.263 of the I.T Act. In the backdrop of his aforesaid contention, it was submitted by the ld. A.R that the lower authorities had erred in concluding that the assessee was not eligible for claim of deduction under Sec.80IC of the I.T Act. The ld. A.R further adverted to the transfer pricing adjustment of Rs. 18,87,62,465/- that was carried out by the A.O/DRP on account of commission on corpora....
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....rved by the Tribunal that depreciation on license fees paid for use of computer software was to be restricted to 25%. The ld. D.R adverting to the adjustment of Rs. 1,10,88,000/- made by the A.O under Sec. 145A of the I.T Act, submitted that as the assessee had claimed that a consequential adjustment to the value of the inventory as per Sec.145A would be tax neutral and had also placed on record a working in support thereof, thus the matter in all fairness in order to verify the veracity of the said claim was required to be restored to the file of the A.O. Insofar the entitlement of the assessee towards claim of deduction under Sec. 80IC was concerned, the ld. D.R relied on the order of the CIT(A). It was submitted by him that in order to verify the contention advanced by the assessee on merits viz. (i) that the value of the "FFS" machine that was transferred by the assessee from its Mulund Unit to its Baddi Unit was less than 20% of the total value of the plant & machinery deployed in the business of the said eligible unit, the matter may be restored to the file of the assessee. As regards the contention advanced by the counsel for the assessee that the satisfaction by the assesse....
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....x-1 of the I-T Rules 1962. In fact, the A.O observed that the treatment of the expenditure on purchase of computer software was to be looked into in the light of the amendment of Sec. 32 w.e.f 01.04.1998, which provided for grant of depreciation on knowhow, patent, copyrights, trade mark, license etc. acquired on or after 01.04.1998. It was observed by the A.O that as the purchase of computer software was in the nature of purchase of knowhow and a license to use the software, therefore, the explanation of the assessee that the expenditure incurred on the purchase of the same was in the nature of a revenue expenditure did not merit acceptance. 11. We have deliberated at length on the issue under consideration and are unable to persuade ourselves to subscribe to the view taken by the lower authorities. We find that the issue that expenses incurred by an assessee on purchase of a software which brought greater efficiency in functioning of its business had been held by the Hon'ble High Court of Bombay in the case of PCIT Vs. Holicin Services (South Asia) Ltd. (2018) 93 Taxmann.com 270 (Bom), as allowable as a revenue expenditure. Further, the Hon'ble High Court of Bombay in the case....
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....2013 upheld the order of the A.O in context of the issue under consideration. 13. Admittedly, the issue pertaining to the entitlement of the assessee towards claim of weighted deduction under Sec. 35(2AB) is a recurring issue which was also involved in its case for the immediately preceding year i.e A.Y 2008-09. We find that the Tribunal while disposing off the appeal of the assessee for the immediately preceding year i.e A.Y. 2008-09, had after considering the contention of the assessee that it had applied for approval in 'Form 3CM' which was still pending, restored the issue to the A.O for providing an opportunity to the assessee to furnish the approval of the competent authority in the prescribed manner for claiming the deduction under Sec. 35(2AB) of the I-T Act. In fact, the ld. A.R by taking support of the observations of the Tribunal in the assesses own case for A.Y. 2008-09, had requested that the matter as regards the entitlement of the assessee towards the claim of deduction under Sec. 35(2AB) may be restored to the file of the A.O in the same terms, with a direction to the A.O to provide an opportunity to the assessee to furnish the approval of the competent authority....
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....e before us is as to whether an independent purchase of software which admittedly formed part of the profit making apparatus of the assesses business and was capitalized in its 'books of accounts' would be entitled for depreciation @ 60% (as claimed by the assessee) or @25% (as allowed by the AO). Admittedly, the claim of the assessee towards depreciation on computer software @ 60% was allowed by the CIT(A) in its own case for A.Y 2008-09. The revenue had not carried the aforesaid order of the CIT(A) any further in appeal before the Tribunal, which thus had attained finality. Be that as it may, we find that the ITAT, Mumbai in the case of Owens and Corning (India) P. Ltd. Vs. ACIT, Range 7(3)(i), Mumbai (2018) 93 taxamann.com 223 (Mum), had observed that the revenue was in error in restricting the assesses claim of depreciation on computer software @ 60% to 25%. In fact, the Tribunal while concluding as hereinabove, had taken support of the judgment of the Hon'ble High Court Bombay in the case of CIT Vs. Saraswat Infotech Ltd. [ITA (L) No. 1243 of 2012; dated 15.01.2013]. Apart there from, we find that further in the following cases also the coordinate benches of the Tribunal had c....
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....arrangement duly sanctioned by the Hon'ble High Court of Bombay, vide its order dated 14.08.1997. In respect of the assets of PHL also the WDV was adopted by the assessee on the basis of the Income Tax records. Further, the assessee in the period relevant to A.Y. 1999-2000 had sold its glass division and bulk drug division. The A.O declined to accept the claim of the assessee that it was a slump sale transaction and considering the same as an itemised sale of assets worked out the WDV of the 'block of assets' by reducing the sale value as recorded in the books of the purchasing company. 18. Insofar the disallowance of the claim of depreciation pertaining to BMIL is concerned, we find that the same being a recurring issue is covered by the order of the Tribunal in the assesses own case for A.Y. 2008-09 in favour of the assessee. We find that the Tribunal while disposing off the appeal of the assessee for A.Y. 2008-09, had observed that it was an admitted fact that BMIL before its merger had not claimed depreciation on the assets in the A.Y. 1995-96 & A.Y 1996-97. In fact, the assessee had claimed depreciation for the first time on the assets taken over from BMIL. It was observ....
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....t there from, the assessee had during the year relevant to A.Y 1999- 2000 sold its two divisions viz. (i). Glass Division (GGL); and (ii). Bulk Drug Division (BDD) on a slump sale basis. As such, the assessee company in A.Y 1999-2000 while computing the deprecation had dropped the WDV of the aforesaid two undertakings from the respective 'block of assets' on the date of such 'slump sale'. As observed hereinabove, the A.O declined to accept the claim of the assessee that it was a 'slump sale' transaction and considered the same as an itemised sale of assets. On the basis of his aforesaid observations, the A.O worked out the WDV of the 'block of assets' by taking the values of the assets as were recorded in the 'books of accounts' of the purchasing company, as the sale value, and reduced the same from the different 'block of assets'. In the backdrop of his aforesaid reworking of the WDV the A.O scaled down the assesses claim of depreciation in respect of assets of PHL. 20. On a perusal of the records, we find that it is the claim of the assessee that the CIT(A) while disposing off its appeal for A.Y 1999- 2000 had observed that the sale of two divisions viz. (i). Glass Division (G....
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....o be presented, and the same provides that irrespective of the methods being followed, the net impact on the profit and loss will be nil; and (iii). that irrespective of whether the assessee follows Inclusive or Exclusive method of valuation of stock, the amount of unutilized MODVAT credit will have no impact on the profits of the assessee. Apart there from, the assessee had also objected to the calculation of the 'closing stock' and 'opening stock' by the A.O by multiplying the stock value by the ratio of purchases (including excise) and purchases (net of excise). It is further averred by the ld. A.R that insofar the valuation of inventories as per Sec. 145A was concerned, the raw material, packing material, stores and works-in-progress was valued at cost, while for the finished goods were valued at cost or net realisable value, whichever was lower. In fact, it is the claim of the assessee that the 'cost' has consistently been taken at net of MODVAT credit. On the basis of the aforesaid facts, it is stated by the assessee that the element of MODVAT was neither included in the consumption nor into cost for valuation of 'closing stock'. As such, it is the claim of the assessee th....
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....unity of being heard to the assessee, who shall remain at a liberty to substantiate its claim before him. The Ground of appeal No. V is allowed for statistical purposes. Disallowance under Sec. 14A r.w Rule 8D : Rs. 5,59,06,129 23. We shall now advert to the disallowance u/s 14A r.w Rule 8D of Rs. 5,59,06,129/- made by the A.O/DRP. The assessee had during the year received dividend income amounting to Rs. 3.94 crores from investments made in shares of Indian companies viz. (i). Allegran India Pvt. Ltd. : Rs. 3.92 crores; and (ii). NPIL Finvest Pvt. Ltd.: Rs. 0.2 crores, which were claimed as exempt u/s 10(34) of the I.T Act. The disallowance u/s 14A made by the A.O comprised of viz. (i). disallowance of interest expenditure U/rule 8D(2)(ii) : Rs. 34.23 lac; and (ii) disallowance of 'administrative expenses' U/rule 8D(2)(iii): Rs. 524.83 lacs. It is the claim of the assessee that the disallowance u/s 14A has been made by the A.O/DRP by misconceiving the facts and the settled position of law. Insofar the disallowance of interest expenditure u/s 14A r.w Rule 8D(2)(ii) is concerned, it was claimed by the ld. A.R that now when the assessee had interest free funds which were substa....
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....nvestments in exempt income yielding assets, and if the said claim was found to be in order, then no disallowance of interest expenditure U/rule 8D(2)(ii) could be made. We thus respectfully following the view taken by the Tribunal in the assesses own case for A.Y 2008-09 in the backdrop of the aforesaid settled position of law, thus direct the A.O to verify the claim of availability of sufficient interest free funds with the assessee. After verification, if the assesses claim is found to be in order, then the disallowance of the interest expenditure made in its hands u/s 14A r.w 8D(2)(ii) shall be deleted. 25. As regards the disallowance of administrative expenditure U/rule 8D(2)(iii) of Rs. 524.83 lacs is concerned, we are persuaded to be in agreement with the claim of the ld. A.R that while computing the disallowance only the investments which had yielded exempt income during the year under consideration viz. A.Y 2009-10 were to be considered for working out the "average value of investments". Our aforesaid view is fortified by the order of the 'Special Bench' of the ITAT, Delhi in the case of ACIT Vs. Vireet Investments Pvt. Ltd. (2017) 165 ITD 27 (Del)(SB). In fact, the Tri....
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....er carried the said matter in appeal before the Hon'ble High Court of Bombay. Further, it was observed by the DRP that as "Patents", "Copyrights" and "Trademarks" were different concepts having different definitions in Intellectual property laws, therefore, they could not be interchanged. In the backdrop of its aforesaid observations, the DRP held a conviction that as Sec. 35A only speaks of "Patents" and "Copyrights", therefore, the claim of the assessee for deduction u/s 35A for the purchase of 'trade mark' of SPPL was rightly held by the A.O as not admissible. 27. We have perused the observations of the lower authorities and deliberated on the contentions advanced by the authorised representatives for both the parties before us. Admittedly, the issue as regards allowability of the assesses claim of deduction u/s 35A in respect of "trademarks" under consideration, had came up before the ITAT, Mumbai in the assesses own case for the immediately preceding year viz A.Y 2008-09. It was observed by the Tribunal that "SPPL" had paid an amount of Rs. 34 crore towards purchase of trademark from "ASE", as per 'agreement' dated 03.10.1997. After making the said payment, SPPL and thereaf....
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....n u/s 35A had consistently been allowed by the Tribunal in the preceding years, therefore, respectfully following the view taken by the Tribunal while disposing off the appeal of the assessee for A.Y 2008-09, the disallowance made by the A.O/DRP u/s 35A of Rs. 2,42,85,714/- during the year under consideration viz. A.Y 2009-10 is vacated. The Ground of appeal No. VII is allowed. Disallowance of advertisement and business promotion expenses : Rs. 27,90,84,346/- 28. We shall now advert to the disallowance of advertisement and business promotion expenses of Rs. 27,90,84,346/- made by the A.O/DRP. Briefly stated, advertisement and business promotion expenses of Rs. 55,81,68,692/- during the year under was debited by the assessee under three heads viz. (i) Key Account Manager (KAM) Expenses; (ii) Customer Relation Manager (CRM) Expenses; and (iii) Gift Articles. The A.O vide his draft assessment order proposed to disallow 50% of the said expenses amounting to Rs. 27,90,84,346/-, for the reason that the said expenses were not incurred wholly and exclusively for the purpose of the business, and being an expense prohibited by law were inadmissible u/s 37(1). Apart there from, it was o....
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....ower authorities, which had disallowed the said expenses for two reasons viz. (i) that the expenses claimed by the assessee were not verifiable; and (ii) that the expenses incurred by the assessee towards giving various freebies to doctors for promotion of its business was inadmissible under Sec. 37(1), as incurring of such an expense was prohibited by law. In the backdrop of the objections raised by the ld. A.R before us, we find that the adverse inferences drawn by the lower authorities as regards the admissibility of the aforesaid expenses has been assailed by the assessee before us on multiple grounds viz. (i) that the Medical Council Regulations, 2002 would though apply to medical practitioners, however, the same were not applicable to the pharmaceutical companies; (ii) that as the CBDT Circular No. 5 of 2012, dated 01.08.2012 imposing prohibition on the medical practitioners and their professional associations from taking any gifts, travel facility, hospitality, cash or monetary grant from the pharmaceutical and allied healthcare sector industries was applicable prospectively, therefore, the same was not applicable in the case of the assessee for the year under consideration ....
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.... had incurred expenditure on distribution of 'freebies' to doctors and medical practitioners, the same though may not be in conformity with the Indian Medical Council (Professional Conduct, Etiquette and Ethics) regulations, 2002, however as the same only regulates the code of conduct of the medical practitioners/doctors, therefore, in the absence of any prohibition on the pharmaceutical companies in incurring of such sales promotion expenses, it cannot be held to have incurred an expenditure for a purpose which is an offence or is prohibited by law. The Tribunal while concluding as hereinabove, had observed as under: "20. We have heard the authorised representatives for both the parties, perused the orders of the lower authorities and the material available on record. We find that our indulgence in the cross appeals filed by the assessee and the revenue has been sought for adjudicating the allowability of the sales promotion expenses incurred by the assessee on the distribution of articles to the stockists, distributors, dealers, customers and doctors, in the backdrop of the CBDT Circular No. 5/2012, dated 01.08.2012 and the MCI regulations. We find that it is the case of....
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....Ethics) Regulations, 2002, and it has no jurisdiction to pass any order affecting the rights/interest of the petitioner hospital. We are of the considered view that on the basis of the aforesaid deposition of MCI that its jurisdiction stands restricted to the registered medical professionals, it can safely be concluded that the MCI regulations would in no way impinge on the functioning of the assessee company which is engaged in the business of manufacturing and sale of pharmaceutical and allied products. We thus, in the backdrop of our aforesaid deliberations are of the considered view that the code of conduct enshrined in the MCI regulations are solely meant to be followed and adhered by medical practitioners/doctors, and such a regulation or code of conduct would not cover the pharmaceutical company or healthcare sector in any manner. We are further of the view that in the backdrop of our aforesaid observations, as the Medical Council of India does not have any jurisdiction under law to pass any order or regulation against any hospital, pharmaceutical company or any healthcare sector, then any such regulation issued by it cannot have any prohibitory effect on the manner in which....
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.... Etiquette and Ethics) Regulations, 2002 (the regulations) on 10-12-2009 imposing a prohibition on the medical practitioner and their professional associations from taking any Gift, Travel facility, Hospitality, Cash or monetary grant from the pharmaceutical and allied health sector Industries. 3. Section 37(1) of Income Tax Act provides for deduction of any revenue expenditure (other than those failing under sections 30 to 36) from the business income if such expense is laid out/expended wholly or exclusively for the purpose of business or profession. However, the explanation appended to this sub-section denies claim of any such expenses, if the same has been incurred for a purpose which is either an offence or prohibited by law. Thus, the claim of any expense incurred in providing above mentioned or similar freebees in violation of the provisions of Indian Medical Council (Professional Conduct, Etiquette and Ethics) Regulations, 2002 shall be inadmissible under section 37(1) of the Income Tax Act being an expense prohibited by the law. This disallowance shall be made in the hands of such pharmaceutical or allied health sector Industries or other assessee which h....
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....rmaceutical or allied health care industry and their sales people or representatives, action stands restricted to the members who are registered with the MCI. In other words the censure/action as had been suggested on the violation of the code of conduct is only for the medical practitioners and not for the pharmaceutical companies or allied health sector industries. We are thus of the considered view that the regulations issued by MCI are qua the doctors/medical practitioners registered with MCI, and the same shall in no way impinge upon the conduct of the pharmaceutical companies. As a logical corollary to it, if there is any violation or prohibition as per MCI regulation in terms of Explanation to Sec. 37(1), then the same would debar the doctors or the registered medical practitioners and not the pharmaceutical companies and the allied healthcare sector for claiming the same as an expenditure." 31. Apart there from, we are also in agreement with the alternative contention advanced by the ld. A.R that though a benevolent CBDT Circular may apply retrospectively, but a circular imposing a burden has to apply prospectively only. As a result thereof, now when the CBDT Circular No....
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....egulations, was also deliberated upon by the Tribunal in the case of Aristo Pharmaceuticals Pvt. ltd. Vs. ACIT (ITA No. 6680/Mum/2012, dated 26.07.2018), wherein in context of the issue under consideration it was observed as under : "23. We find that the CBDT as per its Circular No. 5/2012, dated 01.08.2012 had enlarged the scope and applicability of Indian Medical Council Regulation, 2002, by making the same applicable even to the pharmaceutical companies or allied healthcare sector industries. We are of the considered view that such an enlargement of the scope of MCI regulation to the pharmaceutical companies by the CBDT is without any enabling provision either under the Income Tax Act or under the Indian Medical Council Regulations. We are of a strong conviction that the CBDT cannot provide casus omissus to a statute or notification or any regulation which has not been expressly provided therein. Still further, though the CBDT can tone down the rigours of law in order to ensure a fair enforcement of the provisions by issuing circulars for clarifying the statutory provisions, however, it is divested of its power to create a new impairment adverse to an assessee or to a c....
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.... view taken by the coordinate bench of the Tribunal i.e ITAT "A" Bench, Mumbai, in the case of Aristo Pharmaceuticals Pvt. ltd. Vs. ACIT (ITA No. 6680/Mum/2012, dated 26.07.2018), are of the considered view that the expenditure of Rs. 55,81,68,692/- incurred by the assessee towards advertisement and its business promotion under three heads viz. (i) Key Account Manager (KAM) Expenses; (ii) Customer Relation Manager (CRM) Expenses; and (iii) Gift Articles would not be hit by the "Explanation" to Sec. 37 of the I-T Act. 34. Insofar the observations of the lower authorities that the assessee had not been able to fully substantiate its claim of expenses, we are unable to subscribe to the same. As a matter of fact, the A.O in the course of the assessment proceedings had vide his letter dated 06.03.2013 directed the assessee to file sample bills of expenses in respect of (i) Key Account Manager (KAM) Expenses; (ii) Customer Relation Manager (CRM) Expenses; and (iii) Gift Articles, which admittedly were filed by the assessee. Thereafter, the A.O without pointing out any specific instance with reference to any such sample bill or had made a general observation, that the assessee besides ....
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....under consideration claimed deduction u/s 80IC of Rs. 274,14,16,642/- in respect of its eligible unit situated at Village: Bhatauli Khurd, PO Baddi, Tehsil Nalagarh, District: Solan, Himachal Pradesh (hereinafter referred to as "Baddi Unit"), which is stated to be engaged in manufacturing of pharmaceutical goods. 36. During the course of the assessment proceedings the A.O analyzed the profit & loss account of the whole company, and that of the Baddi unit (entitled to deduction u/s 80IC). It was observed by the A.O that the Baddi unit generated profit at 39.47% of sales as against the non-Baddi unit at 2.02%. On the basis of necessary deliberations, it was observed by the A.O that certain expenses were not allocated by the assessee to its Baddi unit resulting in enhancement of the profit of the said unit. In the backdrop of his aforesaid observations, the A.O by his draft assessment order passed u/s 143(3) r.w.s 144C, dated 28.03.2013 proposed to reallocate R&D expenses of Rs. 12,28,00,000/- and Interest expenditure of Rs. 11,31,00,000/- to the Baddi unit. The assessee assailed the proposed action of the A.O by filing objections before the DRP. Insofar the R&D expenses were conce....
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.... merely on the basis of baseless assumptions had been dislodged by the lower authorities by attributing and/or relating the same to its eligible unit at Baddi. 39. We have given a thoughtful consideration to the issue before us in the backdrop of the material available on record and the contentions advanced by the authorised representatives for both the parties. As is discernible from the records, the assessee had consistently claimed from the assessment stage that no part of the interest expenditure could be allocated to the Baddi unit, as it was set up through internal accruals and no borrowed funds were used. In fact, the assessee had in reply to the specific query raised by the A.O in the course of the assessment proceedings that as to why the interest expenditure was not allocated to its Baddi unit, had vide its letter dated 11/02/2013 submitted before him that the Baddi unit working capital requirements had been met through the cash/funds generated by the unit. It was specifically claimed by the assessee that neither any borrowings were made for setting up the Baddi unit, nor any borrowings/loan was utilized for the said purpose. Apart there from, we find that the assessee....
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....rrowed funds were utilised in setting-up the Baddi unit and further the R&D expenditure incurred was related to manufacturing activity carried out at the Baddi unit, had thus in all fairness restored the issue to the file of the A.O for fresh adjudication, after affording an opportunity of being heard to the assessee. As the fact situation in context of the issue before us remains the same, therefore, respectfully following the order passed by the Tribunal in the assesses own case for the immediately preceding year i.e A.Y 2008-09, we restore the matter to the file of the A.O for fresh adjudication. Needless to say, the A.O shall in the course of the set aside proceedings afford a reasonable opportunity of being heard to the assessee. The Ground of appeal No. IX is allowed for statistical purposes. Disallowance of deduction u/s 80IC (on account of ineligibility of the assessee): Rs. 274,14,16,642/- 41. We shall now advert to the adverse inferences on the basis of which the A.O/DRP holding the assessee as ineligible had declined its claim of deduction u/s 80IC of Rs. 274,14,16,642/-. As observed by us hereinabove, the assessee had in its return of income for the year under con....
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....t was the claim of the assessee that its claim for deduction u/s 80IC was allowable for the year under consideration i.e A.Y 2009-10 and the subsequent years. Apart there from, it was submitted by the assessee that during the year under consideration i.e A.Y 2009-10, the conditions specified in Sec. 80IC(4) were not applicable, as the said year was the 3rd year of operation of the Baddi unit. In sum and substance, it was the claim of the assessee that the conditions specified in Sec. 80IC were to be fulfilled only in the year of formation, which as verified by the A.O were duly satisfied by the assessee in the A.Y 2007-08 i.e the year of formation of its Baddi unit. Insofar transfer of "Form Fill and Seal" machine (hereinafter referred to as "FFS" machine) by the assessee from its Mulund unit, Mumbai to its Baddi unit, Himachal Pradesh was concerned, it was submitted by the assessee that the same was transferred in March, 2008. It was submitted by the assessee that the original cost of the "FFS" machine was Rs. 12.27 crores. Further, it was claimed by the assessee that the approximate 'book WDV' and the 'income-tax WDV' on 31.03.2008 of the "FFS" machine was Rs. 7.67 crore and Rs. ....
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.... disallowed the assesses claim of deduction u/s 80IC by relying on the order passed by his predecessor in its case for A.Y 2008-09. The DRP was of the view that as the disallowance of the assesses claim of deduction u/s 80IC by the A.O during the year under consideration viz. A.Y 2009-10 was consistent with the findings given in the assessment order for A.Y 2008-09, therefore, no interference was required on its part. However, the DRP observed that as the issue pertaining to the disallowance of the assesses claim of deduction u/s 80IC for A.Y 2008-09 was pending before the first appellate authority, therefore, allowability of the assesses claim of deduction u/s 80IC would be dependant on the final decision for A.Y 2008-09. The A.O on the basis of the aforesaid directions of the DRP passed the final assessment order u/s 143(3) r.w.s 144C(13), dated 28.01.2014 and disallowed the assesses entire claim of deduction u/s 80IC of Rs. 274,14,16,642/-. 42. As observed hereinabove, the A.O had during the year held the assessee as ineligible for claim of deduction u/s 80IC by relying on the view taken by his predecessor in the immediately preceding year i.e A.Y 2008-09. Further, the DRP ob....
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....e for deduction claimed u/s 80IC was concerned, the same also did not find favour with the CIT(A), who upheld the view taken by the A.O and concluded that the assessee had violated both the conditions prescribed in sub-section (4) of Sec. 80IC of the I-T Act. Aggrieved, the assessee carried the matter in appeal before the Tribunal. Insofar the assesses claim that the A.O while passing the final assessment order u/s 143(3) r.w.s 144C(13), dated 29.02.2012, had exceeded his jurisdiction by disallowing the assesses entire claim of deduction u/s 80IC, which though was not proposed in the draft assessment order was concerned, the same did find favour with the Tribunal. It was observed by the Tribunal that the disallowance of deduction u/s 80IC made by the A.O in the final assessment order, over and above the amount disallowed in the draft assessment order could not be sustained and was liable to be deleted. As the disallowance of deduction u/s 80IC (except for the part disallowance made on account of reallocation of R&D expenditure and Interest expenditure to the eligible unit at Baddi) was deleted by the Tribunal on the aforesaid legal issue, therefore, it did not advert to the meri....
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....tructed building; (vi). that Baddi was a multi product site with sufficient infrastructure where the "FFS" machine could be utilised to its full capacity by introducing new products which were currently not being manufactured by the assessee; (vii) that if the new products were introduced at Baddi unit without transferring the "FFS" machine, then a new "FFS" machine costing about 25 to 28 crores will have to be purchased and as a result thereof both the "FFS" machines would remain underutilised; (viii) there were tax benefits for manufacturing at Baddi and the cost of electricity per unit and cost of water per kilo liter at Baddi unit was also lower; (ix). the existing husk fire boiler at Baddi will generate steam at cheaper costs as compared to use of gas and furnace oil at Mumbai, both of which were in short supply; (x) that at Baddi the cost of common services such as QC, energy, ETP, canteen security, gardening would be spread over larger number of products, thereby reducing the unit cost of Haemaceel and new products; (xi). that as the energy equipment at Mulund was installed for running the entire HMR site and running these only for "FFS" machine was a costly proposition; (xi....
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....or the "reconstruction" of a business already in existence i.e the business of the assessee at Mulund unit, Mumbai. As such, it was observed by the A.O that the shifting of the manufacturing facilities from Mulund unit, Mumbai to Baddi unit, Himachal Pradesh was in violation of the conditions envisaged in subsection (4) of Sec. 80IC. Further, it was noticed by the A.O that as one of the major machinery viz. "FFS" machine that was transferred from the assesses Mulund unit to its Baddi unit would cost Rs. 25 crore to Rs. 28 crore, therefore, there may also be other used machineries transferred from other then its Mulund unit for which the assessee had evaded to give details. In the backdrop of his aforesaid observations, it was concluded by the A.O that the assessee had violated both the conditions contemplated in sub-section (4) of Sec. 80IC viz. (i). the undertaking or enterprise is not formed by splitting up, or the reconstruction, of a business already in existence; and (ii). the undertaking or enterprise is not formed by the transfer to a new business of machinery or plant previously used for any purpose. In sum and substance, as is discernible from the order of the CIT(A) for A....
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....h was transferred in the second year i.e in last month of March, 2008 was less than 20% of the value of total plant and machinery used in the business at the Baddi unit : It was submitted by the assessee that in the year of formation i.e during the period 10.06.2006 to 31.03.2007 relevant to A.Y 2007- 08, new plant and machinery worth Rs. 83.3 crores was added and put to use at the Baddi unit. The value of the "FFS" machine transferred (i.e "Book value") at the time of transfer of machine to Abbot Healthcare Pvt. Ltd. (i.e company to whom the assessee had by way of 'slump sale' sold its Baddi unit in September, 2010) was Rs. 5.45 crore (approx). The original cost of the machine when purchased by the assessee was 12.27 crores. As for the written down value as per the 'books of accounts' and the written down value as per the Income-tax records as on 31.03.2008, the same was Rs. 7.67 crore and Rs. 2.78 crore, respectively. In the backdrop of the aforesaid facts, it was submitted by the assessee that in all the three scenarios viz. (i) the original cost (Rs. 12.27 crore); (ii) the 'book w.d.v' (Rs. 7.67 crore); and (iii). the 'income-tax w.d.v' (Rs. 2.78 crore), the value of t....
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.... brands of medicines and other pharmaceuticals at its Baddi unit during the period relevant to A.Y 2007-08. Insofar manufacturing of "Haemaccel" by the Baddi unit was concerned, it was observed by the CIT(A) that as admitted by the assessee in its aforesaid letter, the same was started only after the "FFS" machine was transferred from the Mulund unit to Baddi unit on 12/24 March, 2008. In the backdrop of his aforesaid observations, it was concluded by the CIT(A) that the assessee had shifted its Mulund units lock, stock and barrel to Baddi, Himachal Pradesh during the F.Y 2006-07 relevant to A.Y 2007-08, and had continued to manufacture the same medicines/drugs during A.Y 2008-09 and onwards. It was observed by the CIT(A) that the "Haemaccel unit" of the assessee at Baddi, Himachal Pradesh had became functional on 20/02/2009 after the installation of "FFS" machine which was used for filling up liquid pharma product viz."Haemaccel". In fact, a close scrutiny of the observations of the CIT(A) while disposing off the appeal of the assessee for A.Y 2008-09 reveals that he held a conviction that the assessee by splitting up the existing Mulund unit, had set-up a Haemaccel unit at Baddi,....
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....MACCEL" from a German company in July, 2008 and had only thereafter applied for manufacturing of 14 pharma products at Baddi unit, Himachal Pradesh. It was noticed by the CIT(A) that the license to manufacture these 14 pharmaceuticals at Baddi unit, Himachal Pradesh was granted to the assessee in December, 2008/January, 2009. On the basis of his aforesaid deliberations, it was concluded by the CIT(A) that the HAEMACCEL manufacturing plant was a separate unit by itself and the same had nothing to do with the manufacturing of the 87 medicines/drugs which as claimed by the assessee were being manufactured at its Baddi unit. Further, it was observed by the CIT(A) that as in the xerox copy of the "transfer memo" that was prepared by the assessee at the time of transferring the machine from its Mulund unit, Mumbai to its Baddi unit, Himachal Pradesh the value of the "FFS" machine with accessories was mentioned at Rs. 16.08 crore, therefore, the same supported the fact that the plant and machinery transferred by the assessee to its Baddi unit was of a value of Rs. 16,87,47,613/- (supra). It was thus observed by the CIT(A) that now when the assessee itself had adopted the value of the "FFS....
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....d for the immediately preceding year viz. A.Y 2008-09 (as were followed by the A.O/DRP during the year) and also the judicial pronouncements relied upon by them. Succinctly stated, the assessee has assailed the declining of its claim of deduction u/s 80IC on three grounds viz. (i). that the A.O is in error by failing to appreciate that the conditions prescribed in sub-section (4) of Sec. 80IC are required to be satisfied only in the year of "formation" of the undertaking or enterprise; (ii). that the Baddi unit which was set up on 10.06.2006 was not formed by splitting up, or the reconstruction, of a business already in existence; and (iii). that as the value of the "FFS" machinery transferred by the assessee from its Mulund unit, Mumbai to its Baddi unit does not exceed 20% of the total value of the machinery or plant used in its business at the Baddi unit, therefore, as per Sec. 80IC(4)(ii) r.w Explanation 2 of Sec. 80IA(3) the Baddi unit could not be held to have been formed by transfer of machinery or plant previously used for any purpose. 49. We shall first advert to the contention advanced by Shri. J.D Mistry, the ld. Senior counsel for the assessee that the A.O/DRP had er....
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....nitial year i.e the year of the "formation" of the undertaking or enterprise. In fact, the Hon'ble Supreme Court in the case of DCIT, Circle 11(1), Bangalore Vs. ACE Multi Axes Systems Ltd. (2018) 400 ITR 141 (SC), while referring to similarly worded conditions envisaged in Sec. 80IB(2) regarding initial constitution of the industrial undertaking viz. (i). the industrial undertaking is not formed by splitting up, or the reconstruction, of a business already in existence; and (ii). it is not formed by the transfer to a new business of machinery or plant previously used for any purpose, had observed that these conditions are required only in the initial assessment year. However, as observed by the Hon'ble Apex Court, there are certain other conditions that have to continue to exist for claiming the incentive, such as employment of particular number of workers or not manufacturing or producing an article or things specified in the 8th schedule by an industrial undertaking (other than small scale industrial undertaking). The Hon'ble Supreme Court while concluding as hereinabove, had observed as under: "No doubt, certain qualifications are required only in the initial assess....
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....on applies to any undertaking or enterprise which fulfils all the following conditions, namely: - (i) it is not formed by splitting up, or the reconstruction, of a business already in existence....; (ii). it is not formed by the transfer to a new business of machinery or plant previously used for any purpose. On an analogy drawn by the Tribunal from the aforesaid judgment of the Hon'ble Supreme Court in Ace Multi Axes Systems Ltd. (supra), it was observed that the condition of manufacturing an article or thing viz. (a) not being an article specified in the Thirteenth Schedule or (b) any article or thing specified in the Fourteenth Schedule, needs to be fulfilled on year to year basis. Further, it was observed by the Tribunal that the condition of not formed by splitting up, or the reconstruction of a business already in existence or by transfer to a new business of machinery or plant previously used for any purpose, are required to be established in the initial year alone. 50. In the backdrop of our aforesaid observations that the satisfaction of the conditions prescribed in Sec. 80IC(4) are required to be satisfied only in the year of "formation", we shall now deliberate on the....
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.... as under (Page 294 of 'APB') : "During the year the assessee has commenced production at a new unit at Baddi, Himachal Pradesh which is entitled to deduction u/s 80IC" Apart there from, the A.O had reopened the case of the assessee for A.Y 2007-08 under Sec. 147 for the purpose of reallocating certain expenses to its Baddi unit, which he was of the view that the assessee company had allocated to its said unit on the lower side. However, at no stage the claim of deduction raised by the assessee for the said initial year i.e the year of "formation" of the Baddi unit was sought to be declined or dislodged on the ground that as the assessee had failed to have satisfied the conditions prescribed in Sec. 80IC(4), thus it was not eligible for the same. On the basis of our aforesaid observations, we are of the considered view that now when admittedly the Baddi unit was "formed" by the assessee on 10.06.2006 i.e the period relevant to A.Y 2007-08, therefore, in the backdrop of the settled position of law as had been deliberated by us at length hereinabove, the satisfaction of the conditions prescribed in Sec. 80IC(4) was confined to the initial year i.e year of "formation" viz.....
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....rmaceuticals product "HAEMACCEL" on or before 20.02.2009. Further, in support, the CIT(A) had also relied on a newspaper item appearing in 'business standard' wherein it was reported that the assessee company had acquired several brands including "HAEMACCEL" from a German pharmaceutical company in July, 2008, and an application for manufacturing 14 pharma products at Baddi, HP was made by it only after July, 2008. It was further observed by him that the license for manufacturing the aforesaid 14 Pharmaceuticals at Baddi, HP was granted to the assessee in December, 2008/January, 2009. In sum and substance, the CIT(A) in the backdrop of his aforesaid observations had tried to project that the manufacturing of the pharma product viz. "HAEMACCEL" had resulted into setting up of a new "HAEMACCEL" manufacturing plant, which was a separate unit by itself. We have given a thoughtful consideration to the aforesaid observations of the CIT(A) and are unable to persuade ourselves to subscribe to the same. As observed by us hereinabove, the Baddi Unit of the assessee which was set up/ formed on 10.06.2006 since the initial year i.e the period relevant to A.Y.2007-08 was into manufacturing of....
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....ad taken place way back as on 10.06.2006 i.e during the period relevant to A.Y. 2007-08, therefore, the conditions envisaged in Sec.80IC(4) insofar satisfaction of the requirements viz. (i). that the undertaking or enterprise had not been formed by the splitting up, or the reconstruction of a business already in existence; and (ii). that the undertaking or enterprise is not formed by the transfer to a new business of machinery or plant previously used for any purpose, were required to be looked into in the year of such formation, i.e A.Y. 2007-08. As such, the adverse inferences drawn by the revenue in the hands of the assessee while framing the assessment for the year under consideration viz. A.Y. 2009-10 i.e its third year since formation cannot be sustained and is liable to be struck down on the said count itself. 52. We though have vacated the adverse inferences drawn by the lower authorities as regards the eligibility of the assessee towards claim of deduction u/s 80IC on the ground that the satisfaction of the conditions envisaged in sub-section (4) of Sec. 80IC can only be looked into in the year of "formation" and not in the subsequent years, however, for the sake of com....
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....cquired several brands including "HAEMACCEL" from a German Pharma Company in July, 2008 for manufacturing of the said pharma products at its Baddi Unit. On the basis of the aforesaid facts, it can safely be concluded that though the manufacturing of "HAEMACCEL" pharma product at Mulund Unit of the assessee was discontinued, however, merely for the reason that the Baddi Unit had thereafter started manufacturing of "HAEMACCEL" pharma product along with 14 new medicines/drugs after obtaining the license from the competent authority, it cannot be inferred that the Baddi unit for the said reason was to be held to have been formed by splitting up or the reconstruction of the business of the Mulund Unit of the assessee. Insofar the transfer of the "FFS" machine by the assessee from the Mulund unit to its Baddi Unit is concerned, the same in our considered view is a transfer of a machine which was earlier used at the Mulund Unit. Also, we are of a strong conviction that an undertaking or enterprise can be said to have been formed out of an existing business if the physical identity with the old unit is preserved, which is not the case before us. Be that as it may, in our considered view....
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....s per the records of the assessee amounted to Rs. 16,87,47,613/- was concerned, it was submitted by the ld. A.R that the same was based on misconceived and wrong facts/calculations. It was averred by the ld. A.R that the amount of Rs. 4,57,28,210/-(supra) stated in the "xerox" copy was the aggregate amount of depreciation of the "FFS" machine, which the CIT(A) assuming the same as a part of the cost of the machine had wrongly added while working out the value of the said machine. It was thus submitted by the ld. A.R that the value of the "FFS" machine, whether the same be taken "at cost" or "as per the WDV on the basis of books of accounts" or the "WDV as per the income tax records", was in either situation found to be substantially below 20% of the total value of plant & machinery used for business at the Baddi unit, both in the year of formation i.e A.Y. 2007-08 or in the year in which the same was transferred i.e A.Y. 2008-09. In order to substantiate his aforesaid contention the ld. A.R had placed on record a "chart" wherein the aforesaid factual position stands revealed, as under: Particulars A.Y. 2007-08 A.Y. 2008-09 Cost Book WDV I.T WDV Cost ....
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.... on behalf of its 'Associated Enterprise' (for short "AE"), which has been assailed by the assessee before us. Briefly stated, the assessee company had given corporate guarantee for its 'AE' viz. Piramal Healthcare Inc., USA. The A.O made a reference u/s 92CA(1) for determining the 'Arms length price' (for short "ALP") of the international transactions of the assessee to the Addl. CIT, Transfer Pricing Office-II(2), Mumbai (hereinafter referred to as "TPO"). In the course of proceedings, it was observed by the TPO that the assessee company had given corporate guarantee for its AE viz. Piramal Healthcare Inc., USA. Further, it was noticed by him that the assessee had not charged any guarantee commission from its aforementioned AE. The explanation of the assessee that the guarantee commission was built in the interest rates charged from the AE, however, did not find favour with the A.O. In fact, it was observed by the TPO that as the borrowing cost of the assessee was 10.24% against which it has charged a mark up of nearly 3.5% to cover itself against various risks, therefore, its contention that the guarantee commission was inbuilt in the rates charged from the AE did not merit acce....
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....n; (ii). that the amendment to the definition of "International transaction" as envisaged in Sec. 92B, by the Finance Act, 2012, therein bringing within its sweep "guarantee" is prospective in nature; (iii). the blanket rates available on the website cannot be adopted to benchmark the transaction of corporate guarantee and commission.; and (iv). that the addition, if any, may be restricted to 0.5%. Further, it was submitted by the ld. A.R that the Tribunal while disposing off the appeal of the assessee for the immediately preceding year viz. A.Y 2008-09 had restricted the addition towards Corporate guarantee commission to 0.5%. 57. We have deliberated at length on the issue under consideration. Insofar the two fold contentions of the ld. A.R viz. (i). that giving of corporate guarantee by an assessee in respect of its subsidiary company cannot be construed as an International transaction; and (ii). that the amendment to Sec. 92B to the definition of "International transaction" vide the Finance Act, 2012 is applicable prospectively, are concerned, we are unable to persuade ourselves to accept the same. Our aforesaid view s fortified by the fact that the Hon'ble High Court of Bomb....
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.... order of the Hon'ble High Court of Bombay in the case of CIT Vs. Bengal Finance & Investment Pvt. Ltd. [ITA No. 337 of 2013] (Bom). In terms of our aforesaid observations, we direct the A.O to not consider the disallowance made u/s 14A r.w Rule 8D while computing the 'book profit' u/s 115JB of the I.T Act in the hands of the assessee. The Ground of appeal No. XII is allowed. 60. As the Ground of appeal No. XIII being general, is therefore dismissed as not pressed. 61. The appeal of the assessee is partly allowed in terms of our aforesaid observations. ITA No. 1486/Mum/2014 A.Y 2009-10 (Revenues appeal) 62. We shall now advert to the appeal filed by the revenue. The revenue assailing the order of the CIT(A) has raised before us the following effective grounds of appeal: " (i). The Learned DRP has erred in facts and in law, in deleting the disallowance proposed by the Assessing Officer on account of claim of depreciation of Rs. 68,75,396/- without properly appreciating the factual and legal matrix of the case clearly brought out by the Assessing officer in the assessment order. (ii). The Learned DRP has erred in facts and in law, in directing the ....